09 May 2006

Analyst Sees 'Relief' Rally in Cdn Banks

The Globe and Mail, Angela Barnes, 9 May 2006

In case you hadn't noticed it, Canadian financial stocks have been under pressure recently. As a result, the S&P/TSX financial index is the most oversold it has been in more than a year, says Dennis Mark, technical research analyst at Merrill Lynch Canada. He thinks the group could stage a short-term relief rally that could take the stocks back up to resistance levels.

Mr. Mark also noted in a report yesterday that when the S&P/TSX energy index is compared with the TSX financials, the resulting ratio is near the top of a one-year trading range, which suggests that money could flow out of the energy stocks and into the financials.

And if a short-term rebound develops in the bond market, as he thinks could happen, that would also be supportive of a recovery in the financials, he said.

Mr. Mark said that Canadian Imperial Bank of Commerce has the best chart among the Canadian banks. Recent weakness in that stock took it down near $81, where buying interest supported the shares. Resistance doesn't click in until $85 or $86. The next target for CIBC is $90, he said.

Meanwhile, Bank of Nova Scotia has one of the weaker charts in the group, Mr. Mark said. The stock bounced off support at $45 on below-average volume and there is fairly significant resistance at $47, he said. CIBC and Bank of Nova Scotia closed yesterday on the Toronto Stock Exchange at $83.63 and $45.42, respectively.